GameStop (GME, Financial), a multichannel video game retailer, posted better-than-expected first-quarter fiscal 2015 results, exceeding analyst’s expectations on top- and bottom-line. On the back of estimate-beating results, the stock gained 6% in a single trading session, and investors are now sitting on a year-to-date gains of around 29%. Can the company sustain the momentum? Let’s take a look.
First-quarter review
Consolidated comparable-store sales, or comps, grew 8.6% year-over-year on the back of robust double-digit comps growth across Canada and Australia. Domestic and international comps moved up 9.1% and 6.9%, respectively. On the back of solid comps growth and new store openings, total sales increased 3.2% year-over-year to $2,060.6 million, beating analysts’ expectations on the top line.
On the other hand, earnings jumped 15.3% year-over-year to $0.68 per share, trumping estimates by $0.09 per share. This was also helped by the repurchase of $46.4M worth stock, besides top-line growth.
The video game retailer exited the quarter with cash and cash equivalents of $369.8 million, long-term debt of $350 million, and shareholders’ equity of $2,072.7 million.
Diversity is strength
GameStop’s diversity is helping it perform well. For example, the Technology Brand segment reported 70% jump in sales to $102.2 million, and the momentum is expected to sustain going forward, backed by its collaboration with AT&T (T, Financial).
New video game software sales surged 9.6% year-over-year to $613.6 million while mobile and consumer electronics’ sales grew 33.9% year-over-year to $136.8 million. Also, video game accessories’ sales, too, grew 3.7% to $150.5 million.
Acquisition adds to diversity
GameStop recently announced plans to acquire Geeknet (GKNT, Financial), the parent of ThinkGeek, which deals in fun merchandise related to technology, video games and science-fiction and fantasy movies and TV shows. This is a smart move as this will help the company to diversify swiftly into the pop-culture collectibles market.
"The addition of Geeknet is an important expansion of our global multichannel platform, and we are excited to leverage their product development expertise to broaden our product offering in the fast-growing collectibles category and deepen relationships with our existing customer base," GameStop CEO Paul Raines said in a statement.
Rapid store expansion to drive growth
Besides diversifying its portfolio, GameStop is also expanding store network to drive growth. The company plans to open 450 to 550 new Technology Brand stores in the current fiscal, out of which 200 new stores would be opened by this coming summer.
Global opportunity is huge
According to a report from Gartner, the global video game market, which includes video game console hardware and software, online, mobile and PC games, will reach over $110 billion in 2015. Out of this, mobile games will be the fastest-growing category, with revenue reaching around $22 billion. It is not surprising that GameStop’s digital receipts grew 17.2% year-over-year after the impact of currency headwinds. So, the retailer is well positioned to make the most of the opportunities in the gaming market space as they unfurl.
Wrapping up
GameStop expects comps growth of flat to 3% during the second quarter. Also, currency headwinds and lower software sales will be a drag on the top line, which is expected to remain flat or decline 3% versus the year-ago quarter. EPS is expected to be in the $0.21-$0.25 range.
However, for the fiscal year, EPS is revised upwards and expects it to be in the $3.63 to $3.83 range. Full-year comps growth is expected to be in the range of 1% to 6%. Its forward P/E of 9.99 and P/S ratio of 0.50 make it look attractive. Moreover, given the diversity of its portfolio after the acquisition of Geeknet, risks are further lowered.
Hence, this is a good buy.
